The Important Role Life Insurance Plays In Divorce Settlement Negotiations

When couples are ending their marriage or relationship there are many financial issues that need to be resolved including the division of property and respective ongoing support obligations. Two different categories of ongoing support one spouse may be responsible for are child support and spousal support, sometimes referred to as alimony. Child support is paid by one spouse to the other for the benefit of the children that they have in common. Alimony is paid for the benefit of the other spouse to account for a disparity of income that may exist between the couple upon their divorce.

Once the amount of each obligation is either agreed upon or ordered, the former spouses can then move forward and create their new personal budgets knowing the amount of support that they will have to pay or the amount of support that they will receive. But, what happens if one of the spouses dies after a divorce? This is where the existence of life insurance policies to secure these obligations becomes particularly important.

Unless agreed upon otherwise, the obligation to pay alimony terminates upon the death of either spouse. However, if a payee spouse has relied upon a certain amount of spousal support being paid to them, the sudden termination of alimony could be a life altering event. If a life insurance policy was in existence for the benefit of the payee spouse, the payout of the policy can help to mitigate the negative financial impact that sudden death can cause.

Similarly, while child support is paid to one spouse for the benefit of the parties’ child or children, parents rely on the consistent stream of support payments to cover everyday expenses. Life insurance policies can be taken out for the benefit of the parties’ child or children; naming the payee spouse as the trustee if a parent dies prior to a child reaching the age of majority.

Life insurance also plays an important role when couples plan, have agreed, or have been ordered to pay money toward their child’s college education. Life insurance benefits, in the event of the death of one of the parents, may be used to help pay for the costs associated with college in addition to whatever other accounts have been already established for education payments.

When divorcing couples are negotiating settlements it is important to establish how much life insurance will be necessary to secure the various ongoing and upcoming financial obligations and who will pay the premiums associated with the policy or policies. For the spouse who is not the owner of the policy but who may be the beneficiary of the policy, it is important that they be provided the ability to gain access to pertinent information regarding the policy. This information includes whether the policy is in existence, when premiums are due and whether they have been timely paid and if any beneficiary or policy amount changes have been made. While some life insurance companies will only require that this access be given in a settlement agreement or order, most require separate authorizations, company specific forms or even court orders to permit the nonowner spouse to gain such access. The only way to know what a specific life insurance provider requires is to contact them and ask. Once it is determined what the specific provider requires, the appropriate documents, if necessary, can be prepared and consented to by the spouses and signed so that both individuals have the necessary information about the policy.

While the preparation of authorizations or other documents may at the time seem like an unnecessary expense or extra step, in the event that information is needed, these documents will be the only way in which to gain the necessary access.

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